IMF Executive Board Approves New Conditionality Guidelines

The Executive Board of the IMF has approved new guidelines on the design and implementation of conditionality in Fund-supported programs. The guidelines represent the culmination of a comprehensive and far-reaching review of conditionality launched two years ago with the purpose of enhancing the effectiveness of Fund-supported programs. They also represent the first revision of the IMF's conditionality guidelines since 1979.

The process of revising the IMF's approach to conditionality was initiated by Managing Director Horst Köhler, after taking up his position in May 2000, and received the firm backing of the Board of Governors at the September 2000 Prague Annual Meetings. The new guidelines were developed by the Fund after seeking input from civil society and public forums held in several countries. The Executive Board discussed a series of staff papers on the topic over the past two years before considering the actual guidelines.

The review and the guidelines it produced were undertaken with the aim of streamlining and focusing conditionality so as to enhance the success and effectiveness of Fund-supported programs and to promote national ownership of reforms. Thus, an important purpose of the guidelines is to improve the interaction between the Fund and borrowing countries as they work together to promote sustainable growth and development.

The guidelines emphasize the need to focus conditionality on policies that are critical to achieving the macroeconomic objectives of Fund-supported programs. They also aim to establish a clearer division of labor with other international institutions, especially the World Bank. The guidelines are based on an increasing recognition of the importance of several interrelated principles, including national ownership of policy reforms; parsimony in the application of program-related conditions; tailoring of programs to the member's circumstances; and clarity in the specification of conditions.

The new guidelines introduce specific criteria for deciding whether conditions are appropriate in each case. Structural conditionality is regarded as an important element of Fund-support programs, as long as it is critical to achieving the macroeconomic objectives of the program. The guidelines also spell out the roles of different types of program-related conditions, including performance criteria, structural benchmarks, and prior actions. A note by IMF staff providing additional explanation and context for the conditionality guidelines was released along with the guidelines.

An essential aspect of the IMF view of conditionality is that the member country should take primary responsibility for its own policies, and that documents setting out the country's reform agenda should be drafted as much as possible by the authorities rather than by Fund staff. The Executive Board agreed during the course of its review that properly designed conditionality can complement and reinforce national ownership.